By Dave Gardner
Prospects for the Woodstock Generation to enjoy a healthy retirement appear to be increasingly filled with nagging unknowns, as this massive group of historic Americans transitions to walkers and wheelchairs.
Lynn Evans, a certified financial planner with decades of experience, is now managing director of the financial literacy organization Women of Substance. She is adamant that, despite outward appearances, long-term financial uncertainty is now the norm and must be expected within any retirement forecast.
According to Evans, global pressure and surprises beyond anyone’s control have become extremely plentiful. When this harsh reality is accepted, the classic retirement question of how to avoid outliving assets in comfort appears littered with variables.
“The horrific 2008 financial crash was not built into any financial projection or model, and many good people really got hurt who had done nothing wrong,” said Evans. “Therefore, retirement planning is now somewhat of a crapshoot. The key is to create a plan that has a realistic chance of allowing a retiree to draw out funds for their needs while the remainder increases.”
Evans now tells her clients that any projection for a retirement plan over 15 to 20 years will almost certainly include vigorous ups and downs. The sudden onset of another recession, a war or major cuts to Medicare, Medicaid and Social Security, are all variables that could occur.
“Alleged firm projections of wealth over long periods of time can generate a false sense of security,” said Evans. “There just are no guarantees in this volatile and politically divided world.”
According to Evans, one bright spot on the retirement horizon is the condition of the stock market. Evans is firm that the current market is not a bubble, because fundamental metrics associated with business, such as the employment rate, corporate earnings, interest rates and reformed tax rates, are all solid.
However, the lesson of recent history clearly indicates that a disrupting variable could appear at any moment and thereby create a downward financial spiral.
“As a society, we paid a very harsh price to dig out from the 2008 financial crash,” said Evans. “This took a good 10 years to occur, and we’re finally seeing the benefits right now.”
With thousands of baby boomers now entering their golden years every day, the extended health care needs of this expansive group have become crushing. Long-term private insurance policies that cover institutional care costs have evolved and become plagued with steep rate increases.
However, market evolution can now offer a connection between life insurance and long-term care coverage, with life policies paying out for long-term care until the policy is financially exhausted. In this scenario, the policy will either pay death benefits or sustain long-term care.
Perhaps above all, with Medicare now the pillar of funding for health care in retirement and Medicaid the primary payer for long-term institutionalized care, federal promises to reform these programs must be a key concern within any retirement plan. Overall health care costs are sure to rise, and few retirees will be able to pay directly for their health care or eventual personal care needs.
“The bottom line here is that this market is changing, and anyone buying a long-term policy should carefully investigate their options,” said Evans. “They also must remember, with retirement planning, the maximum any real projections can be made is five years.”
Janine Starinsky, MHA, serves as executive manager of Oakwood Terrace, a live-in care facility for patients suffering from dementia including Alzheimer’s. Funding for Oakwood Terrace flows from private payers, but Starinsky is acutely aware that similar providers funded by Medicare and Medicaid are caught between a financial rock and hard place, thereby making Washington’s federal efforts to “reform” these entitlement programs of great concern.
According to Starinsky, all baby boomers should be aware that an early diagnosis of dementia, including the specific disease of Alzheimer’s, is vital if the onset of the problem is to be delayed. A display of repetitiveness, inconsistent hygiene and behavioral problems, are all tip-offs that dementia is beginning, often with heredity playing a role.
“The politicians who are talking about entitlement reform for retirees are all missing the boat,” said Starinsky. “Funding for the care of these health problems, which usually occur in retirement, should be at the forefront of public policy as the onslaught of baby boomers entering retirement picks up steam.”
She added that, within her industry, caregivers and providers are now in crisis mode with regard to the caregiving workforce. Oakwood’s staff has been solid with continuity, but this is often not the same elsewhere as organizations seek to recruit employees with training and experience.
“Neglect and abuse often begins at home,” said Starinsky. “Home care is therefore not a simple fix when a person needs care from professionals.”
Maria Maletta-Hastie, outreach and enrollment coordinator with LIFE Geisinger, works within a program that helps older adults receive support so that they can live independently at home. Operating with the patient goal of “aging in place” as opposed to living in a care facility, the effort now operates within a state-mandated managed care environment and survives through a combination of private, federal and state funding.
More than 100 patients, all age 55 or older, are served daily by LIFE Geisinger with an all-inclusive menu of care services. Patients suffering from falls, dementia and a wide variety of physical ailments are common, with door-to-door transport available as needed.
“When we look at retirement it becomes clear that the best tactic is to do everything you can do to stay healthy,” said Maletta-Hastie. “But, realistically none of us can avoid all physical problems, and programs such as ours are obviously vital with so many seniors joining the ranks of the elderly every day.”
With these realities in mind, and huge projections for the amount of people who will suffer from dementia, Maletta-Hastie prescribes a pre-retirement of walking whenever possible, eating a healthy diet, keeping the mind active and pursuing new mental challenges and new behaviors. These tactics are the best defense against dementia, because each activity creates new neuro pathways within the brain that can help to deter mental decline.
“Depression from social isolation is becoming very common, and playing a role in the mental declines of so many people,” said Maletta-Hastie. “This is why one of the best retirement plans is to stay active.”
The Misericordia University educational team of Fred Croop, MBA, dean of the college of professional studies and social sciences, and Allen Minor, DBA, assistant professor of business and director of health care management program, voiced different concerns about the prospect for reform to the nation’s federal retirement entitlements that are now vital to financing retirements and elder health care.
Croop explained that overall health care costs are sure to continue rising in the future, and with the defined benefit pension system virtually dead, Washington must step back and work to ensure that both Medicare and Medicaid survive as vast numbers of boomers enter the systems. He urged Washington to use an impartial task force to study reform and its consequences.
“The boomers consistently say that they paid into these systems through taxation and they want their money,” said Croop. “Meanwhile, many disappointed younger people state the funding won’t be there for them when they retire.”
Croop is firm that, because of the current onslaught of retirees, something must be done with reform to keep Medicare and Medicaid, plus Social Security, solvent. However, with extremism now the norm in Washington, lawmakers seem incapable of debating the needed changes to the systems.
Croop therefore urges all parties within the debate to decide what these entitlements programs are meant to achieve in the 21st century. In the past the programs were designed to be safety nets, but with health care and long-term costs consistently rising for decades fundamental structural questions are appearing.
“What are these programs meant to be at this point in American history?” questioned Croop. “We all must realize conditions change with history.”
Third rail disruption
Minor believes that Medicare is still a third rail of American entitlements and curbing it with reform would be precarious. However, the program is now headed for a financial shipwreck because of steeply rising participation and costs, with the specific timing of the program’s insolvency a true unknown.
Therefore, Minor can foresee attempts in Washington to transform Medicare from a defined benefit to limited provider system where participants receive a limited check or voucher to purchase extremely expensive insurance. This approach, known as premium support, would raise health care costs for retirees and could initially sound good to the public because of clever talking points.
In addition, artificially cheap rates may be offered by the insurance companies to capture market shares within premium support and then rise as the insurance companies strive to cover their payout costs.
“I fear that steep premium increases are the only development that will cause the public to pay attention to what is really taking place within many entitlement reform plans,” said Minor. “The selling and talking points will be powerful, and the vital cultural questions may be avoided. The lobbyists will also be active, and painful reform may wind up taking a generation or two to be accepted.”
Political and societal issues
The hot potatoes of Medicare and Medicaid reform are not just political issues, according Satyajit Ghosh, Ph.D., professor of economics and finance at the University of Scranton. He warns all retirees to be aware that Washington will need to replace vital revenues lost by the recent tax reform bill, totaling $1.5 trillion over ten years.
“This was a Reagan-era idea, to starve social programs of revenues so they must be cut,” said Dr. Ghosh. “We may not see big entitlement reforms during 2018 because the GOP is feeling politically vulnerable, but if the GOP legislative majority survives the midterm elections, we may well see attempts to severely reduce these health care programs for seniors.”
Dr. Ghosh warned that, in view of the fact that decreasing numbers of Americans genuinely study the news, conservative attempts at slashing Medicare and Medicaid may succeed in a quiet atmosphere as happened with tax reform. He therefore is hoping that, when the Medicare and Medicaid reform actually begins, vigorous public scrutiny will unfold.
Another possibility with entitlement reforms, according to Dr. Ghosh, is that Washington will produce a series of incremental cuts that are not noticeable at first. Rates may slowly rise and already-frugal provider payments slashed in steps, eventually leading to severe financial problems for Americans that entered into a social contract with Washington to care for their golden years.
“I hope we will have public hearings on any Medicare and Medicaid reform plan that exposes the harsh consequences for the public, particularly for retirees, those in nursing homes, and people who cannot work,” said Dr. Ghosh.